Philipp Fink, Dichotomy of Industry in Hungary in:

Philipp Fink

Late Development in Hungary and Ireland, page 177 - 177

From Rags to Riches?

1. Edition 2009, ISBN print: 978-3-8329-4173-4, ISBN online: 978-3-8452-1720-8

Series: Nomos Universitätsschriften - Politik, vol. 168

Bibliographic information
177 4.2.5 Dichotomy of Industry in Hungary The analysis of the economic results of the FDI-led development regime shows that the large levels of FDI inflows into the Hungarian economy supported the structural transformation of the previous socialist economy. The large inflows into the manufacturing sector of the country allowed the reorientation of the economy towards exports for EU markets. The success of the attraction policies is visible in the high levels of TNC penetration and illustrates the large capacity of the state to attract export-oriented FDI. However, this capacity is only partial, as the analysis of the indigenous sector shows. The industrial policy instruments are biased towards larger foreign-owned firms. State capacity is too low to either tackle the distortions to the productive structure or cater for an increased incorporation of TNCs into the Hungarian economy. Largely unable to benefit from industrial aid, Hungarian firms show distinct performance gaps in comparison to foreign-owned firms. They are concentrated in low technology sectors and their production is labourintensive. Their primary orientation towards the internal market and poor capital endowment act as a growth constraint, resulting in low profitability. They remain small in size and are, therefore, unable to develop scale economies. Under-funding also results in their inability to develop new technologies and products, which could enable them to access profitable markets. Furthermore, they are faced with product and factor market competition stemming from imports and TNCs. Their resulting underperformance contributes to their unattractiveness as potential co-operation partners to TNCs. The lack of co-operation is also the result of the quasi-oligopolistic firm-specific competitive advantages of TNC affiliates. The defence of these competitive advantages keeps local cooperation to a minimum. Consequently, the level of spillovers from investing TNCs to Hungarian firms is low. Hence, two distinctly different sectors have evolved creating a dualistic industrial structure, whereby the modern foreign-dominated export sectors vastly outperforms the indigenously dominated sector. As result, the foreign-owned sector dominates the Hungarian economy. Hence, the role of the TNC in Hungary as a harbinger of international competitiveness to the host economy and acting as a transfer agent for technological progress is questionable. Moreover, due to the export-oriented nature of the foreigndominated sector of the economy, economic growth and Hungarian development is dependent upon the impulses stemming from the TNC export markets, illustrating the continued peripheral nature of FDI-led growth in Hungary. 4.3 Hidden Inequality in Hungary Whilst not singularly responsible for the rise in income inequalities during the transition process, the inflows of capital-intensive FDI into Hungary since 1990 have been the drivers of structural change within the economy. As a result of the high

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Irland und Ungarn verfolgen eine Entwicklungsstrategie, die in bewusster Abhängigkeit von Globalisierungsprozessen in Form von ausländischen Direktinvestitionen steht und sich als Paradigma in der Peripherie durchgesetzt hat. Doch dieser Entwicklungspfad hat zu einer ungleichen und abhängigen Entwicklung geführt. Dies ist laut dem Autor das Resultat des mangelnden Gestaltungswillens beider Staaten, für einen gleichgewichtigen Wachstumsprozess zu sorgen. Die historische Analyse zeigt, dass eine auf ausländische Firmen fußende Entwicklungsstrategie nicht ausreicht, um traditionelle Peripheralität zu überwinden. Der Autor fordert eine Reform des Entwicklungsparadigmas, um eine gleichgewichtige Entwicklung zu ermöglichen.